Amaranth aftermath: Congress shoots the wounded

Even though I was off yesterday, this story about the congressional hearings into last year’s collapse of the mammoth hedge fund Amaranth Advisors caught my eye.

Amaranth accumulated a huge position in the natural gas futures market, and Congress is again pointing its finger at a favorite target: speculative trading. They argue that Amaranth drove up futures prices for winter gas. But looking at gas prices for the year that ended last September when Amaranth folded, it doesn’t look as if the fund was very successful.

Amaranth went long on gas after Hurricanes Katrina and Rita, and indeed, prices did spike, surging as high as $15.38 in December 2005. After that, though, rationality returned to the market, and prices plunged. By the end of last September, they were down to $4.20.

As prices fell, Amaranth continued to double down, sure that prices would rebound. The fact that they didn’t caused the firm’s demise. The fact that the markets have moved along just fine since then shows that they work.

But Congress likes its hearings so they can utter vote-winning phrases like “socked consumers with high prices” and “turn U.S. energy markets into a lottery.”